Scenario: Wang's Techno Toys
Ann Wang has been successful in the domestic market selling high-tech toy products. But facing stiff competition at home, Ann has entered international markets by direct exporting.
-Which financing method represents the greatest risk for Ann's export business?
A) Documentary collection
B) Advance payment
C) Letter of credit
D) Open account

Question

Quizplus · Accepted Answer

Open account represents the greatest risk for Ann's export business as it requires no payment guarantee from the buyer before the goods are shipped. This leaves Ann vulnerable to non-payment or delayed payment, which can hurt her cash flow and profitability. Advances payment, letter of credit, and documentary collections provide varying degrees of payment security for the exporter, making them less risky options.